Correlation Between Academy Sports and Lithia Motors
Can any of the company-specific risk be diversified away by investing in both Academy Sports and Lithia Motors at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Academy Sports and Lithia Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Academy Sports Outdoors and Lithia Motors, you can compare the effects of market volatilities on Academy Sports and Lithia Motors and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Academy Sports with a short position of Lithia Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Academy Sports and Lithia Motors.
Diversification Opportunities for Academy Sports and Lithia Motors
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Academy and Lithia is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Academy Sports Outdoors and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors and Academy Sports is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Academy Sports Outdoors are associated (or correlated) with Lithia Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithia Motors has no effect on the direction of Academy Sports i.e., Academy Sports and Lithia Motors go up and down completely randomly.
Pair Corralation between Academy Sports and Lithia Motors
Considering the 90-day investment horizon Academy Sports Outdoors is expected to under-perform the Lithia Motors. But the stock apears to be less risky and, when comparing its historical volatility, Academy Sports Outdoors is 1.06 times less risky than Lithia Motors. The stock trades about -0.32 of its potential returns per unit of risk. The Lithia Motors is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 33,483 in Lithia Motors on August 24, 2024 and sell it today you would earn a total of 5,162 from holding Lithia Motors or generate 15.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Academy Sports Outdoors vs. Lithia Motors
Performance |
| Timeline |
| Academy Sports Outdoors |
| Lithia Motors |
Academy Sports and Lithia Motors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Academy Sports and Lithia Motors
The main advantage of trading using opposite Academy Sports and Lithia Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Academy Sports position performs unexpectedly, Lithia Motors can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lithia Motors will offset losses from the drop in Lithia Motors' long position.| Academy Sports vs. AutoZone | Academy Sports vs. Best Buy Co | Academy Sports vs. Dicks Sporting Goods | Academy Sports vs. Advance Auto Parts |
| Lithia Motors vs. Group 1 Automotive | Lithia Motors vs. AutoNation | Lithia Motors vs. Asbury Automotive Group |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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